Reuters reported today that online retail spending rose 15 percent on the Monday after Thanksgiving from a year earlier. Sounds pretty good doesn't it? Take a look at the link here. http://www.reuters.com/article/internetNews/idUSTRE4B25Q220081203It seems that online spending reached $846 million on Monday. It was the second heaviest online spending day ever.

Everyone who knows me knows that I have always said that consumer confidence is the only thing that will save this economy. It is actually the only thing keeping the economy down right now.

Think about it. What is depressing the stock market right now? Are stocks inherently less valuable than they were a year ago? You could argue that some of them are due to sales forecasts and revenues being lower than were expected, but that is still a function of consumer confidence and the consumers willingness to purchase the product. However, the physical assets of the companies are still in place. The plants, equipment, raw materials, labor force and real estate owned by these companies are all still in place. They have not been diminished in the least. Sure there are some issues regarding some companies' goodwill and reputation, but the physical assets still physically remain. Get it?

The question still remains... just what will jump start the economy?

Well, falling gas prices will help. Keep in mind that retail sales, both in-store and online are probably being positively affected by the drop in gas prices. A recent article in the Kansas City Star computes that the average 2 car family is saving about $200 per month compared to last July. Where do you think a significant portion of that savings is going this year? I would say Christmas. The drop in fuel prices will also save money for those people this winter who rely on heating oil and natural gas to warm their homes. This will further ease pressure on those pocketbooks.

There is something else. Food and staple products we use every day aren't dropping as we'd like. There are 2 important reasons for this. Number one, diesel is the fuel of choice in large trucks that transport these products. Although it is cheaper, it hasn't fallen at the rapid rate we've seen in unleaded gasoline, but it is lower and will continue to fall. Number two, fertilizer is petroleum based and many of the products on the shelves including, (can you believe it?) disposable diapers are petroleum based as well. These products were made well in advance of them being on the shelves and were made with previously more expensive oil-based products. You should expect the first items you see coming down in price to be the items that are daily delivered, perishable and don't use petroleum products. (eggs, milk and fresh produce)

Let's take a look at some other things. How about housing? It has suddenly become more affordable for many people to become homeowners. In Southern California existing home sales are up 65% since last year. What happened? Housing prices dropped. You had a huge pent-up demand of people who thought they were doomed to be lifelong renters. Slash 25-30% off the price and suddenly it's the after Thanksgiving Black Friday housing event of a lifetime. Many areas of the country are experiencing this and consumers are responding.

And how about mortgage rates? We quoted 5.5% on a 30 year fixed rate mortgage last week. When was the last time rates were that low?

These are all very positive signs and by themselves would probably be enough to get consumers spending again, but for one thing; unemployment. Unemployment is hanging around 6.5%. Some economists are predicting it could get as high as 8.5%, but as my old man used to say, "If you laid all the economists in the world end-to-end, they still couldn't reach a conclusion." Nobody is going to accurately predict that number. That being said, I believe that as job growth improves in certain areas of the country, you will see localized consumer confidence improve.

And what will be the effect of all of this government meddling? Government bailouts unfortunately will only allow bad companies to continue to stay in business and lose our money. I don't really see the government as much of a savior in all of this, only a hindrance as they won't help existing business create more jobs by doing the one thing they can actually help with, which is lowering taxes. The best we can hope for out of the government is that they don't screw up the natural selection process. The market is very good at creating better products, lowering prices, creating new jobs and getting rid of unprofitable industries that consumers don't want if left alone.

My prediction? A good spring due to overall lower costs in the marketplace for areas with relatively low unemployment. Consumer confidence will surge amoung those with stable employment and will improve as more jobs are created. It's all about the consumer feeling good about the future. It always has been. (by the way, consumer confidence was up in November! A harbinger of things to come?)